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Tax reform is the antidote for Australia’s COVID-19 economic crisis

Tomorrow sadly marks the 10th year anniversary of when the Australian Government released the final report of the Ken Henry Tax Review – The Australia’s Future Tax System Review.  

This was a missed opportunity of epic proportions. Back then the key conclusion was that 115 of Australia’s 125 taxes and charges raised just 10 per cent of overall taxation revenue.  This massively inefficient and complex tax system remains today – virtually unchanged and costing jobs and business viability.

But what has changed since then is obviously the onset of a global pandemic that has seen economic activity plunge to levels not seen since the great depression in the 1930’s. Over the last few weeks when I’ve been speaking with business owners and leaders about what changes are necessary for an economic recovery - tax reform has been at or near the top of the list.

The nation's top tax reform architect, Ken Henry, recently indicated the current tax system will fail to support an economic recovery from the COVID-19 pandemic. A good question to ask then is should we be using the need to repair the economic chaos caused by COVID-19 pandemic as an initiator of fundamental tax reform.

As the saying goes, you never want a serious crisis to go to waste. It's an opportunity to do things that were previously thought of as undoable.  Much of the tax reform agenda is potentially unpopular but surely now is a time when the broader community will understand desperate actions are needed in this time of crisis.

It’s clear that the COVID-19 pandemic’s economic woes are going to worsen before improve. Crises like these force individuals and companies to change or suffer the consequences. The three tiers of government should be no different.

The current outdated tax system is incapable of efficiently and fairly raising the revenue required for future years and providing a primer for economic recovery. Australia’s and Queensland’s economy has changed forever but the tax system has not moved at the same pace.  As a result, Commonwealth and State taxes are now considered by Queensland businesses to be an inhibitor on any post COVID-19 pandemic economic recovery.  

It is widely recognised that holistic tax reform would realise a significant economic benefit to the Australian economy. At the time Ken Henry forecast his recommendations would be to increase GDP by 2 to 3 percentage points, (equivalent to $38 billion to $57 billion) and the real wage rate to increase in the range of 3 to 5 per cent. 

With this in mind undoubtedly the best way for the nation to recover from this once in a lifetime economic crisis  is for the Federal and State Governments to embrace tax reform to underwrite a business-led revival.

The 125 recommendations of the Ken Henry Tax Review are the obvious starting point and include cutting business taxes, increasing the goods and services tax and abandoning damaging state-based property stamp duties in favour of land tax.

Now is the opportunity to ensure the economic and business policy settings are squarely focused on ensuring an economic recovery agenda that also happens to lay the foundation for Australia’s and Queensland’s prosperity and standards of living well into the future.  

QEAS criteria for Australia's tax system:

  • equity - fairness in the distribution of resources between high and low income earners as well as similar tax burdens for taxpayers with similar means;
  • economic efficiency - taxation impacting neutrally on taxpayer groups and economic sectors with commercial decisions not skewed by tax considerations;
  • adequacy - tax systems raising sufficient revenue for public expenditure needs;
  • simplicity - taxpayers being able to clearly understand their obligations;
  • transparency - taxpayers understanding how and when they are paying tax, and how much tax they are paying;
  • cost - compliance and collection costs minimised; and
  • anti-avoidance - minimum incentive and potential for avoidance of taxation.

The importance of gender balance from a male economist

Whilst achieving gender balance in the workforce is often looked at with the lens of being a social issue it is undoubtedly a commercial opportunity for business, industry sectors and the economy more broadly. 

Increasing female workforce participation is key to boosting Australia’s productivity. Currently (January 2020) the workforce participation rate among those aged 15-64 years is 61.4% for women and 70.9% for men. For females to achieve the same participation rate as males in Australia there would need to be an extra 1,001,174 women in the labour force. Currently there are approximately 6.5 million women in Australia's labour force.                    

As evidenced in the above graph Australia has improved its women’s workforce participation and made encouraging progress towards reducing the gender participation gap.  This progress is, amongst other things, due to increased levels of education, changing social attitudes towards gender roles, declining fertility rates, improved access to childcare services and increased uptake of flexible working arrangements.

However, Australia still has relatively low female participation rate in comparison to many of our OECD peers (eg Iceland 77.8%, Norway 67.2% and Sweden 70.7%) and our nation’s progress has not translated into some industry sectors.  For example female participation in the construction industry is lower than any other Australian industry and has remained unchanged for a significant length of time. 

Currently the construction industry has the largest gender imbalance of any Australian industry with overall female participation sitting at approximately 13 per cent of the construction workforce with most of these women in clerical and administrative roles. This comes at a significant economic cost to the construction industry as it hampers productivity and weighs on growth.  In short it is a missed opportunity.

Benefits to the economy and industry

Achieving gender equality is important for workplaces not only because it is ‘fair’ and ‘the right thing to do,’ but because it is linked to Australia’s overall economic performance.

International evidence is unanimous, when more women participate in economic decision-making at all levels within businesses and more widely at an industry sector level, economies grow. Improving female participation particularly in leadership boosts productivity, increases economic diversification and income equality in addition to other positive outcomes.

For example:

  • UN Women found increasing the female employment rates in OECD countries to match that of Sweden, could boost OECD GDP by over USD 6 trillion. Conversely, it is estimated that gender gaps can cost economies some 15 per cent of GDP.
  • In 2012, the Grattan Institute found that if there were an extra 6 per cent of women in the workforce, Australia could add up to $25 billion, or approximately 1 per cent, to our nation’s Gross Domestic Product.
  • The Organisation for Economic Co-operation and Development (OECD) estimates that closing the gender participation gap by 75 per cent could increase growth in Australian GDP per capita from 2 per cent per annum to 2.4 per cent. 
  • Goldman Sachs & JBWere calculated that the rise in female employment since 1974 has boosted Australian economic activity by 22 per cent. 
  • Projections by KPMG indicate that if the labour force participation gap between men and women was halved, Australia’s annual GDP would increase by $60 billion in just 20 years. Our cumulative living standards would also rise by $140 billion in this time (KPMG, 2018).

Benefits to businesses at a microeconomic / company level

There exists considerable microeconomic evidence—that the financial performance of companies improves with more gender-equality in organisational roles. Improving gender balance whether by industry, occupation or level (including board level, executive level and team level) has clear economic benefits for individual businesses delivering better financial performance.

Increased organisational performance: There is significant evidence from across the globe demonstrating the positive impacts on company performance of female representation on boards, in executive management and senior leadership.  For example McKinsey found that companies in the top quartile for gender diversity on their executive teams were 21 per cent more likely to experience above-average profitability. They found that executive teams that were high-performing had more women in revenue-generating roles. Findings also indicate that companies with low representation of women were 29 per cent more likely to underperform on profitability.  

Diversity and organisational performance: Credit Suisse found that well managed diversity brings together varied perspectives, produces a more holistic analysis of company issues and spurs greater effort, leading to improved decision-making.   Men and women have different viewpoints, ideas, and market insights, which enables better problem solving, ultimately leading to superior performance at the business unit level. A gender-diverse workforce provides easier access to resources, such as various sources of credit, multiple sources of information, and wider industry knowledge. A gender-diverse workforce allows the company to serve an increasingly diverse customer base.

Enhanced ability of companies to attract talent: When workplaces are equally appealing to women and men, organisations understandably have access to a larger talent pool. Employees value positive workplace cultures and environments that offer gender equality policies and practices, flexible working arrangements and support for employees with family and caring responsibilities.

Enhanced ability of companies to retain employees: Workplace policies that support gender equality retain talented employees. Research shows that employees are more likely to remain with an organisation in which there is a proactive diversity ‘climate’ as they perceive a concrete payoff to themselves by staying in an organisation they view as fair. The costs associated with employee turnover and resulting hiring and training new employees can be high. The Australian economy is estimated to lose approximately $3.83 billion in productivity and $385 million in avoidable recruitment costs each year (PwC, 2014).

Enhanced organisational reputation: The benefits of inclusive workplaces to organisational reputation are evident - gender equality is critical to an organisation’s success and is viewed as a baseline feature of leading organisations. High performing employees are attracted to companies that have a positive reputation for promoting gender equality.

In summary benefits of greater gender balance include increased financial performance; enhanced innovation and decision making; improved customer relations and orientation; reduction of staff turnover; stronger corporate reputation; attraction of the best talent; and a higher level of employee satisfaction. 

The aggregation of these benefits to individual companies produces industry and economywide benefits. Achieving gender balance is ‘fair’ and the ‘right thing to do’ but an evidenced based approach to this issue on the economic gain is also arguably a very good way to advance progress.

The economic benefits of a Queensland 2032 Olympic and Paralympic Games

A Queensland 2032 Olympic and Paralympic Games will provide unrivalled and historic opportunity for the Sunshine State. That is the unsurprising finding from the Queensland Government’s value proposition assessment released this week.

A 2032 Queensland Olympics will showcase our State like never before as a destination driving unprecedented investment and opportunities for the State’s economy, businesses and community.

The State Government blueprint for hosting the 2032 Olympic and Paralympic Games predicts economic benefits in the billions of dollars and jobs for the next 20 years.  Initial economic estimates include:

  • The 2032 Games would be held over three venue ‘hubs’ – Brisbane, the Gold and Sunshine Coasts but will also include regional locations.  43 venues have been identified (18 are outside Brisbane);
  • The quantifiable economic benefits for Queensland have been estimated at approximately $7.4 billion;
  • The Games could have a positive impact on job creation, supporting around 130,000 direct jobs. In addition to direct jobs, there will be tens of thousands of indirect jobs supported by the Games including over 10,000 tourism induced jobs in the Games year alone;
  • The tourism and trade opportunities the Games could deliver are significant. This includes an estimated uplift of around $20.2 billion in international visitor expenditure between 2020 and 2036 and increased export opportunities of up to $8.6 billion; and
  • There are a range of qualitative social and community benefits that the Games could deliver over a potential two-decade window of opportunity including increased participation in sport and volunteering.

A Queensland Olympics bid is worthy of support from across the length and breadth of our State including from our regions.  Why? Quite simply the Games will showcase Queensland’s spectacular destinations to a global audience that will have a return on investment for decades in the area of tourism.  This will unmistakably also benefit Regional Queensland as the economic opportunity ripples across the State's 1.853 million km2.

A Queensland 2032 Olympic and Paralympic Games will leave a lasting legacy for the benefit of future generations of all Queenslanders.  

The 2032 Olympic and Paralympic Games – Value Proposition Assessment can be found here:  https://www.premiers.qld.gov.au/publications/categories/reports/assets/2032-olympic-paralympic-games-vpa.pdf

*photo from my life as a professional athlete pursuing the Olympic dream.

Cooperation between the Federal and Queensland Governments on Infrastructure will deliver productivity growth

Photo courtesy of the ABC

The $1.9 billion road and rail package announced by the Prime Minister and Queensland Premier is excellent news for the Sunshine State - boosting vitally needed economic growth in the short term but also providing the infrastructure to deliver longer lasting productivity growth.

Under the announcement the Morrison Government will bring forward nearly $650 million in funding and provide more than $680 million in new funding and the Palaszczuk Government has committed $606 million.

This is an illustration of the cooperation needed between tiers of government to deliver responsible and considered economic management.

 

Quotes from the Prime Minister include:

“We want these road and rail projects delivered as quickly as possible so Queenslanders can benefit from better infrastructure, but importantly we want to boost the economy now."

“By bringing forward these important road projects we will drive jobs, boost the economy and make Queensland roads and highways safer, while reducing travel times so people can be with their families instead of being stuck in traffic."

“We will bring forward funding for a total of 20 projects right throughout Queensland, including key upgrades on the M1, Bruce, Warrego and Cunningham Highways, and the North Coast Rail Line.”

 

Quotes from the Queensland Premier include:

“I have always said we work best when we work together."

“We have called for a better deal for Queensland and the Prime Minister has listened."

“We’re getting projects off drawing boards to create more jobs in more industries and deliver the things that make people’s lives better."

 

Pleasingly both governments have also reached an agreement on $9.3 billion Inland Rail project, paving the way for the delivery of the project in Queensland.

 

New and additional federal funding for projects

$400 million for future priorities on the National Network including M1;

  • Funding to flow immediately over the next two years;
  • This commitment builds on the $91.4 million in federal funding for existing M1 upgrades being brought forward, and the $46.3 million in additional funding for M1 Interchange Upgrades Exits 41 and 49;
  • Expenditure of remaining funds will be agreed between the Australian and Queensland Governments;

$157 million for Stage 3A of the Gold Coast Light Rail project;

  • Funding to flow immediately over the next four years;
  • This commitment builds on the $60 million in federal funding being brought forward;
  • Total cost of the project is $709 million
  • The project will create more than 760 jobs during construction.
  • Australian Government contribution is now $269 million up from $112 million.
  • Queensland Government contribution is $351 million.
  • Gold Coast City Council contribution is $89 million.

$50 million for the relocation of the Loganlea Station; 

  • Funding to flow from 2020-21;
  • Total cost of the project is $95 million;
  • Queensland Government contribution is $45 million;

$46.3 million for M1 Interchange Upgrades Exits 41 and 49;

  • Funding to flow immediately and increases the Australian Government’s contribution to the project to $96.3 million;

$20 million for planning for the Port of Brisbane connection

  • Funding to flow from 2020-21;
  • Total cost of the project is $20 million;
  • Queensland Government will provide an in-kind matching contribution;

$10 million for the development of a business case for the Salisbury to Beaudesert rail line

  • Funding to flow from 2020-21;
  • Total cost of the project is $20 million;
  • Queensland Government contribution is $10 million.

 

Federal Government project funding brought forward

$225.6 million for Bruce Highway upgrades, including the Linkfield Road Overpass, the Pine River to Caloundra corridor, Stage 2 of the Mackay Ring Road, the Rockhampton Ring Road, and Stage 5 of the Cairns Southern Access; 

  • Funding to flow immediately after previously being allocated beyond the forward estimates.

$118.5 million for Roads of Strategic Importance (ROSI) initiative upgrades including the Cooktown to Weipa, Townsville to Roma, and Toowoomba to Seymour (Queensland section) corridors, as well as Shute Harbour Road;

  • Funding to flow immediately after previously being allocated beyond the forward estimates.

$94.3 million for M1 Pacific Motorway upgrades between Eight Mile Plains and Daisy Hill, Daisy Hill to Logan Motorway, and Varsity Lakes to Tugun;

  • Funding to flow from 2020-21 after previously being allocated beyond the forward estimates.

$90 million for the North Coast Rail Line Upgrade between Beerburrum and Nambour;

  • Funding to flow immediately after previously being allocated beyond the forward estimates.

$62 million for Stage 3A of the Gold Coast Light Rail project;

  • Funding to flow immediately after previously being allocated beyond the forward estimates.

$22 million for new upgrades along the Warrego Highway; 

  • Funding to flow from 2020-21 after previously being allocated beyond the forward estimates.

$27 million for new upgrades along the Cunningham Highway; 

  • Funding to flow from 2021-22 after previously being allocated beyond the forward estimates.

$9 million for road upgrades associated with the Hinkler Regional Deal including the Torbanlea Pialba Road Upgrade, Bargara Road Upgrade, and Isis Overtaking Lanes;

  • Funding to flow from 2020-21 after previously being allocated beyond 2021-22.

$7 million for the North Brisbane Bruce Highway Western Alternative to examine the viability of constructing a western alternative corridor parallel to the Bruce Highway in north Brisbane;

  • Funding to flow from 2021-22 after previously being allocated beyond the forward estimates.

 

Queensland Economic Update - November 2019

The Queensland economy is experiencing a difficult period with growth generally below trend and at levels similar to during the GFC.  The economy is shaping up to be a crucial issue in 2020 with the local government elections (28th March), the State Budget (28th April), the Federal Budget (early May) and the State Election (31st October) all an opportunity to stimulate business activity at a micro level and through aggregation the broader economy.

This economic update in particular contrasts Queensland against our two biggest rivals for attracting and retaining business investment - New South Wales and Victoria. 


Please click on this link for the latest performance assessment of the Queensland economy by QEAS.   

Queensland's Infrastructure Pipeline is currently unfunded, unapproved and uncertain

During the week I had the opportunity to deliver a key speech at the Queensland Infrastructure Summit hosted by the Infrastructure Association of Queensland (IAQ). 

What my presentation confirms is that the future of our State’s infrastructure pipeline is potentially a very good one provided that we convert unfunded projects into reality and address issues around planning delays.

For a full copy of my speech and slide deck please click on this link.

 

 

Extending the Brisbane Metro to Brisbane’s airport makes economic sense

Brisbane Lord Mayor Adrian Schrinner’s proposal to expand the Brisbane Metro project to Brisbane Airport is an excellent idea.

People who are arriving as tourists at the airport have an option of catching a taxi, an Uber or the Airtrain, but for people who work there every day it’s not affordable,” Cr Schrinner

The Brisbane Metro is a one billion dollar high frequency rapid transit transport system along 21km of existing busway from the Royal Brisbane and Women’s Hospital to Eight Mile Plains. It includes 18 stations, including 11 interchange stations, two of which will link with Cross River Rail.

The extension proposal utilises the Airport Link tunnel to approach the airport, rather than any new infrastructure having to be put in place and would most likely link with BNE’s SkyGate and the BNE Master Plan’s Mass Transit System

The proposal would improve the accessibility of the public transport network, provide increased mode choice and encourage additional public transport patronage for BNE’s 23,826 employees.

This will be of crucial importance in light of BNE's anticipated growth.  Based on passenger growth the airport's total economic contribution is forecast to grow from its current figure of $4.7 billion per annum to an estimated $8.7 billion by 2040 and employment at the airport is forecast to reach more than 46,000 employees by 2040.

Currently 91 per cent BNE employees use a car to travel to their workplace but only 13 per cent use public transport (some employees use both as part of their commute). 58 per cent of BNE employees have an average commute time in excess of 30 minutes.  
 
The proposal would undoubtedly ease road congestion for fellow Brisbane motorists and reduced commute times - currently estimated at an average 67 minutes each day and has been steadily rising across the past decade. The Bureau of Infrastructure, Transport and Regional Economics (BITRE) has previously estimated that road traffic congestion costs for Brisbane will rise from $3.1 billion at present to $5.9 billion by 2030 if we do nothing. 

BNE employees have indicated that higher frequency, more ‘out of hours’ services, more public transport stops across the BNE precinct and greater intermodal connection would all influence increased usage of public transport. The Brisbane Metro extension proposal is consistent with this.

The Brisbane Metro’s cost benefit analysis has previously indicated that for every $1 of total expenditure, Brisbane Metro is expected to return $1.91 of benefits to the local economy.  The proposed extension would strengthen the business case for Brisbane Metro even further.

For the above reasons this proposal is more than just a thought bubble and accordingly warrants serious consideration, support and ultimately implementation.

The danger for business from CEDA’s latest research

I am very big fan of the work that CEDA (Committee for the Economic Development of Australia) does and their latest research is no exception. 

CEDA has released the results of its first nationwide poll of Australian business, to better understand community expectations of business; and the challenges facing business leaders. CEDA’s inaugural “Company Pulse” is a nationwide survey of the general public and business leaders that includes more than 3000 people.

Overall, the results show the community expects a broad contribution from business including on social and environmental issues. Key results included:

  • More than 70 per cent of the general public agreed that large companies should place equal importance on economic, environmental and social performance; and
  • More than three-quarters of survey respondents supported business leaders speaking out on issues of national importance, including social and environmental issues.

 “While there has been much debate on the appropriateness of corporate leaders speaking on issues outside their core business, it is clear from these results the community consider this to be acceptable.” CEDA Chief Executive Melinda Cilento 

The danger of course is that regardless of how commendable such social causes may be, many tend to be divisive amongst the community.  

My warning to business is that they should choose carefully what cause to weigh in on or risk losing market share. The reality is that many (or some) of their customers may have a differing view and since that business has chosen to make it an issue they may now support another business who has their view or are silent on the issue. The question is ..... who can afford to lose any customers these days.

Sometimes respectful silence can be the most sensible play.

The CEDA research is excellent and thought provoking.  If you get the time access it here

 

 

Queensland's domestic economy - June Quarter 2019

Key points:

Over the year to the June quarter 2019 Queensland's domestic economy in trend terms grew by 0.9% on par with growth in the national domestic economy (0.9%). GDP growth for Australia over the year was 1.5%.

Queensland's domestic economy in trend terms grew by 0.3% in the June Qtr 2019 and compares to national domestic growth of only 0.2% (GDP 0.4% includes net exports). Tasmania leads the way (0.6%) followed by Victoria.

Queensland's domestic economic growth in context. Over the past year Queensland's domestic economy has grown in trend terms by only 0.9% exactly half of the ten year average (1.8%). The only consolation is it mirrors national performance (yearly %: 0.9% 10 yr ave: 2.4%).

Queensland's domestic economy is relying on Government spending to keep our economy growing (not going into recession)

Queensland Councils revenue grab on non-residential property owners

The Property Council and the Queensland Resources Council recently commissioned QEAS to determine how local councils in Queensland are complying with State Government guideline principles in applying differential and minimum rates on land owners.

The report analyses local government rating practices and performance for non-residential properties across Queensland and illustrates the practical dollar implications of inconsistent, inequitable and volatile rating practices facing property owners across Queensland.

Queensland's 77 councils generate more than $6.2 billion revenue in rates and levies each year representing approximately 65 per cent of their total operating income. For most councils rates are the main source of revenue other than Queensland and Australian Government grant funding. 

The revenue pressure on local councils is significant, and this is evident in their rating practices. Many councils are continually departing from established ‘Guideline Principles’ when balancing competing budgetary pressures. 

Councils in Queensland unlike other jurisdictions are privileged with more autonomy and minimal constraints in levying differential rates - there is no legal obligation on councils to provide justification for their rating decisions.   

The QEAS report confirms that councils are inconsistent in their approaches, are not transparent in their decision-making and lack accountability. The resultant outcome is a lack of consistency, a lack of certainty and a patchwork of approaches that impedes new investment and economic growth across Queensland. 

The QEAS report demonstrates that there is a need for reform of the way council rates are determined in Queensland.

Key findings include:

  • There is considerable complexity in the determination of rates applying to non-residential properties in Queensland.  Over 607 rating categories were specifically analysed for non-residential properties across 15 LGAs. This complexity has only further increased in 2018-19 with an additional 39 non-residential categories introduced.
  • At present there is no overall consistency in approach as to how Queensland councils are applying their rating practices.  
  • The number of differential rate categories within a LGA appear to be based more on the opportunity to raise revenue—by singling out property owners and their capacity to pay —than on its original purposes of better aligning equity and user pays principles.
  • Most councils break up categories by some measure of size.  However some councils have ascending or progressive rates based on size, some have descending or regressive rates and others have no linear pattern whatsoever (often inconsistently within that LGA).  
  • In general the pattern is for an ascending rate applied based on size of non-residential properties.
  • Many councils specifically identify individual non-residential properties or a resource project and apply a higher rate to it. Either non-residential properties are specifically named or the category is defined so narrowly to effectively capture only one property. 
  • The resulting outcome is that non-residential property owners and resource projects pay considerably higher rates than residential property owners 
  • In many instances a council has applied a considerably higher rate increase to non-residential categories between 2017-18 and 2018-19 than for residential properties, further exacerbating an already higher differential rate for commercial properties and resource projects.

A full copy of the report is available through the Property Council website: ‘Review of local government rates paid by Queensland non-residential property owners and resource projects’.

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